[REVISION HISTORY]

SEBI derivative settlement methodology review

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2026-10-03 12:16 UTC → 2026-10-16 03:35 UTC · added ~~removed~~

The Securities and Exchange Board of India (SEBI) is reviewing the methodology for determining settlement prices for derivative contracts. This follows the August 3, 2026, implementation of the Closing Auction Session (CAS) in the equity cash segment, which replaced the previous volume-weighted average price (VWAP) mechanism with a 20-minute auction to improve price discovery. Market participants have reported increased volatility, particularly on derivatives expiry days. Analysts have noted that sudden price swings during the auction can lead to significant surges in option premiums, raising concerns that limited participation may allow specific orders to disproportionately influence closing prices. On September 12, SEBI issued a consultation paper proposing a ‘Blended VWAP’ ~~methodology—incorporating trades from both the final 30 minutes of the Continuous Trading Session and the 10-minute CAS—or~~ methodology or retaining the existing methodology as an interim measure. SEBI Chairman Tuhin Kanta Pandey indicated the regulator is also considering delinking derivatives settlement prices from cash market closing prices and discontinuing live indicative index values during the CAS. Furthermore, SEBI is examining the rationalisation of margin requirements for longer-tenure derivative products to encourage healthier participation in the futures and options (F&O) segment. By October 3, SEBI reported receiving over 3,500 comments ~~in response to its consultation paper. The regulator is assessing these submissions, which cover~~ regarding modifications to the CAS, market timings, and settlement methodologies. Chairman Tuhin Kanta Pandey indicated ~~that SEBI~~ the regulator intends to move quickly following the ~~close of the~~ consultation period. ~~Beyond equity derivatives,~~ On October 16, SEBI released a final framework for the ~~regulator is also examining liquidity in commodity~~ CAS, scheduled to take effect on December 7, 2026. The new rules revise the CAS timing to operate from 3:30 PM to 3:40 PM on all trading days. For derivatives ~~by reviewing position limits for non-agricultural contracts~~ expiry settlement, SEBI will retain the 30-minute VWAP method. Index derivatives will use the underlying index value based on the VWAP of index stocks during the final 30 minutes of continuous cash market trading, while stock derivatives will use the VWAP of the respective stock across all exchanges during that period. Rules regarding the transfer of unexecuted limit and ~~addressing GST issues affecting deliveries.~~ iceberg orders from the continuous trading session will not be applicable until February 8, 2027.

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